"The Market Is Being Brutal": Futures Crash As Banks Crisis Slams Europe, Credit Suisse Craters

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by Tyler Durden
Wednesday, Mar 15, 2023 - 12:04 PM

Just when it seemed that futures may finally be stabilizing after a week of rollercoaster moves and one day after US regional banks rebounded amid hopes that the US small bank run was easing, the bank crisis made a triumphant arrival in Europe where (just as we warned yesterday) it was all about Credit Suisse.

The Swiss Bank, already trading at all time lows after it said yesterday that its financial reports had a material weakness, cratered more than 20%...

... and its CDS exploded to record highs...

... after the bank's top shareholder, Saudi National Bank Chairman Ammar Al Khudairy, whose stake has lost more than one-third of its value in three months, ruled out investing any more in the troubled Swiss bank as a bigger holding would bring additional regulatory hurdles.

“The answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory,” Al Khudairy said in an interview with Bloomberg TV on Wednesday. That was in response to a question on whether the bank was open to further injections if there was another call for additional liquidity.

The comment hammered not only CS stock and CDS, but sparked panic amid the entire European banking sector...

... leading to headlines such as these...


... as Europe’s Stoxx 600 equity benchmark fell more than 2%, with a gauge of banks plunging as much as 6%, and sparking a fresh rout in S&P futures which after trading mostly unchanged for much of the session, cratered as much as 2%, with Nasdaq futures tagging along. The fresh panic sent investors scrambling for safety, and Treasury yields tumbled both in the US and Europe...

...while Gold soared.


“Credit Suisse’s top holder’s comments are adding to the already negative sentiment towards banks,” said Ricardo Gil, head of asset allocation at Trea Asset Management. “The market is being brutal.

The Credit Suisse contagion then quickly spread back to the US as shares of other large US banks sank in premarket trading. Here are some other notable premarket movers:

  • Vacasa shares decline 11% after the vacation rental management company gave a first-quarter revenue forecast that was weaker than expected.
  • Smartsheet shares gain 12% on low volumes, after the software company gave a positive forecast for full-year adjusted EPS, compared with the loss that analysts had been expecting. It also reported fourth-quarter results that beat expectations, though it gave a full-year revenue forecast that was weaker than expected.
  • Lulu’s Fashion Lounge Holdings jumps 9.5% in extended trading on Tuesday after reporting fourth-quarter net revenue that topped the average analyst estimate and a smaller-than-anticipated adjusted Ebitda loss.

“Short-term sentiment across markets remains volatile,” said Mark Dowding, chief investment officer at BlueBay Asset Management. “Steps taken by the Fed and FDIC have helped contain the issues related to US banks and so there should be no lasting impact on financial stability. However, rising volatility, prospect for more regulation and concerns that tighter lending standards could slow growth are all factors that can weigh somewhat on equity and credit markets and lead to somewhat higher risk premiums than we had assigned last week.”

“Central banks are likely to be more cautious as they monitor the tightening in credit conditions,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. “However, one major difference with previous banking crisis episodes is a more resilient macro backdrop including persistent inflationary pressures. This will make for a difficult trade-off between inflation and financial stability risks.”

“With the regional banks playing a key role in US credit extension, the Fed will not raise interest rates next week, and we have likely seen the peak in both short and long rates during this cycle,” said Torsten Slok, chief economist at Apollo Global Management.

US stocks had been hit in the past week following the collapse of Silicon Valley Bank on fears of a possible risk of contagion. Until this morning, all eyes are now on the Fed’s policy meeting next week for clues on whether the central bank will push ahead with previous signals on keeping rates higher for longer or take steps to tone down its hawkish policy; however in light of today's events we can probably forget any rate hikes again. In fact...


“The overall assessment of the economy, monetary policy and the financial system has become more difficult and that in itself warrants a more cautious approach to risk,” said Peter Garnry, head of equity strategy at Saxo Bank A/S. Meanwhile, strategists Sarah McCarthy and Mark Diver at Sanford C. Bernstein said that while the recent slump has made investor sentiment more bearish, its not yet pessimistic enough to show a contrarian buy indication.

European stocks were obviously in freefall, with all sectors dragged lower by Credit Suisse which slumped 22% to a record low after its top shareholder ruled out providing more assistance. Other European banks followed suit, pushing the Stoxx 600 2.2% lower while the bank index falls 5.6%. The Stoxx 600 Banks Index was 5.9% lower, reaching the lowest since early January, making it the worst performing sector in Europe.

Earlier in the session, Asia - blissfully unaware of the drama about to unfold - closed mostly in the green with the MSCI Asia Pacific Index climbning as much as 1.4%, led higher by a rebound in financial stocks from three days of losses in the wake of Silicon Valley Bank’s collapse. Tech stocks including Tencent, Alibaba and Samsung were among the biggest individual contributors to the benchmark’s gain. Investors also evaluated data showing China’s retail sales and industrial output rose in the first two months of the year following the end of Covid restrictions.

The stock gains come one day after the key Asian gauge erased its gain for the year amid the global turmoil sparked by SVB’s failure. Asian equities posted losses last month on concerns over China’s economy and higher-for-longer US interest rates. “There has been some derisking that has taken place and I think that sets up people to reload, and if markets then begin to regain the momentum, I think there is buying power on the sidelines not just from hedge funds but also mutual funds, sovereign wealth and a number of other pools of capital,” Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs, said in a Bloomberg television interview. Major equity indexes rose more than 1% in Hong Kong, South Korea, Singapore and elsewhere. The Hang Seng Tech Index surged as much as 3.9% as Goldman Sachs said the risk-reward for platform companies “looks good” after substantial derating

Japan’s Topix stock index rose as investors bet the worst of the global fallout from the American banking sector has passed.  The Topix advanced 0.6% to 1,960.12 as of the market close in Tokyo, while the Nikkei 225 was virtually unchanged at 27,229.48. Shares also gained after a report showed US inflation data was roughly in-line with expectations, cooling concerns of further Fed interest-rate hikes.  Mitsubishi UFJ Financial Group Inc. contributed the most to the Topix’s gain, increasing 4.7%. Out of 2,159 stocks in the index, 1,740 rose and 354 fell, while 65 were unchanged.

Stocks in India were the biggest decliners in Asia as index-heavy banking stocks slid for the fifth consecutive day, the worst such streak since last month.  The S&P BSE Sensex Index fell 0.6% to 57,555.90 in Mumbai, while the NSE Nifty 50 Index declined 0.4% to 16,972.15. The five-day drop in the key gauges has pushed them within 1% of entering a technical correction after they surged to their record peaks in December. A gauge of financial companies, banks and shadow lenders has come under pressure in recent sessions on continuing troubles at sector peers in the US. Analysts are turning cautious on the outlook for banks as rising interest rates and a fears of a slowdown in economic growth start to hurt loan demand. Reliance Industries contributed the most to the Sensex decline, decreasing 1.7%. Out of 30 stocks in the index, nine rose and 21 fell. 

In FX, a gauge of the dollar’s strength extended gains after four days of declines, climbing as much as 0.7%; the Japanese yen, a haven currency, outperformed.

As they sold everything else, investors flocked to perceived safe-haven assets with Treasuries, bunds and gilts all catching a bid. Treasuries extended gains in early US trading as stock losses deepen. Treasury yields were richer by 20bp to 12bp across the curve in a sharp bull-steepening move with front-end outperforming on the day, steepening 2s10s, 5s30s spreads by ~4bp and ~5bp on the day; 10-year yields around 3.54%, richer by 15bp vs Tuesday close, following similar gains in bunds while 10-year gilts lag by around 7bp. Focal points of US session focus include data releases including February PPI and retail sales at 8:30am New York time. Money markets aggressively pared ECB tightening wagers ahead of Thursday’s policy outcome; traders priced 37.5bps of hikes compared to as much as 47bps earlier. The yield on two-year German notes dropped as much as 33 basis points

In commodities, West Texas Intermediate crude fell below $70 a barrel in New York for the first time since late 2021 as investors remain on edge after last week’s bank failures. Spot gold reversed an earlier fall to trade higher by 0.2%.

To the day ahead now, and in the UK the government will deliver their Budget announcement. Otherwise, data releases from the US include February’s PPI and retail sales, along with the NAHB housing market index for March and the Empire State manufacturing survey for March. In the Euro Area, we’ll also get January’s industrial production data. Finally, earnings releases include Adobe.

Top Overnight News

  1. Credit Suisse Group AG Chairman Axel Lehmann said government assistance “isn’t a topic” for the lender as the Swiss bank seeks to shore up confidence among clients, investors and regulators after a series of missteps: BBG
  2. China’s economic data for Jan & Feb was largely inline (although pointed to improved momentum amid reopening), with industrial production +2.4% YTD (vs. the St +2.6%), retail sales +3.5% (vs. the St +3.5%), and fixed asset investment +5.5% (vs. the St +4.5%). WSJ
  3.  Japanese companies preparing to raise wages by 2.85% during the spring compensation talks that end today, up significantly from +2.2% last year and the fastest rate of change since 1997. RTRS
  4.  The cost of insuring Credit Suisse bonds against default in the near term is close to 1,000 bps, about 20 times more than for UBS and 10 times for Deutsche Bank. The CDS curve is also deeply inverted. Chairman Axel Lehmann said government help "isn't a topic." Saudi National Bank "absolutely" won't provide more assistance, its chairman said. The stock tumbled further in Zurich. BBG
  5.  The Federal Reserve is rethinking a number of its own rules related to midsize banks following the collapse of two lenders, potentially extending restrictions that currently only apply to the biggest Wall Street firms.  A raft of tougher capital and liquidity requirements are under review, as well as steps to beef up annual “stress tests” that assess banks’ ability to weather a hypothetical recession, according to a person familiar with the latest thinking among U.S. regulators. WSJ
  6.  A senior Republican on the House Financial Services Committee called for the gov’t to temporarily provide unlimited deposit insurance to prevent further contagion and Rep. Maxine Waters says expanded deposit insurance is “on the table”. Politico
  7.  S&P said it doesn’t expect to place other US banks on negative watch for now as deposit outflows don’t appear unmanageable at the moment. Also, The head of one of the world’s largest asset managers called Moody’s Investors Service’s outlook cut for the US banking system “a terrible overreaction” and said regulators had reassured the market following the collapse of three lenders. “There were a lot of unique circumstances around the banks in question — both on the asset and liabilities side,” State Street Corp. Chief Executive Officer Ron O’Hanley said in an interview with Bloomberg TV on Wednesday. “I don’t think it’s helpful when rating agencies treat entire sectors the same way.” RTRS / BBG
  8.  Regional bank leaders are snapping up shares of their companies’ stocks, taking advantage of a selloff fueled by the fallout from Silicon Valley Bank’s collapse. More than 100 executives at lenders across the US, including PacWest Bancorp, Metropolitan Bank Holding Corp. and CVB Financial Corp., spent at least $13.9 million combined boosting their stakes, according to data compiled by Bloomberg. Most of the transactions took place in the past few days. BBG
  9.  FRC spoke to at least one PE firm about raising capital before the gov’t took steps Sun night to stabilize the industry and prior to securing a financing pact w/JPMorgan. RTRS  
  10. Bank of America Corp. mopped up more than $15 billion in new deposits in a matter of days, emerging as one of the big winners after the collapse of three smaller banks dented confidence in the safety of regional lenders. BBG
  11. The Federal Reserve is considering changes to its oversight of midsized banks following the collapse of three lenders in the past week, according to a person familiar with the matter: BBG
  12. China’s bond trading was disrupted on Wednesday morning after the regulator reportedly told money brokers to suspend their data feeds due to security concerns: BBG

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were mostly positive as they followed suit to the gains in global counterparts after banking contagion fears eased and markets found some relief in the absence of any additional bank failures, although the advances were limited as participants also digested mixed Chinese activity data. ASX 200 was led higher by strength in tech which took impetus from the outperformance of the sector stateside following Meta’s jobs and cost-cutting plans albeit with gains capped as the energy industry lagged after oil prices recently dipped to a fresh YTD low. Nikkei 225 initially climbed as banking stocks atoned for the recent turmoil although price action in Japan was choppy and the index eventually gave back all of its early gains heading into the conclusion of the spring wage negotiations while there are talks of solid wage increases among the large companies. Hang Seng and Shanghai Comp. traded higher with the outperformance in Hong Kong driven by strength in tech and developers, while sentiment in the mainland is underpinned after the PBoC injected funds via its 1-year MLF and 7-day reverse repos but with upside capped following mixed industrial production, retail sales and urban fixed asset investment data releases.

Top Asian News

  • PBoC announced to lend CNY 481bln through 1-year MLF vs. CNY 200bln maturing with the rate kept unchanged at 2.75% and injected CNY 104bln via 7-day reverse repos with the rate kept at 2.00%.
  • PBoC said it will step up financing support for private small firms and will support reasonable bond financing needs of private companies, according to Reuters.
  • China's FX regulator said it will prevent external shocks and risks, as well as deepen reforms and the opening up of the forex sector. It will continue pushing forward facilitating cross-border trade and financing, while it will guarantee the safety, liquidity and value of FX reserve assets, according to Reuters.
  • China stats bureau said economic operations showed a stabilising and recovery although the foundation of the economic recovery is not solid yet and that China's economy still faces difficulties this year including global risks. Furthermore, it said China faces pressure and challenges in achieving the 2023 growth target but added that consumption will show a significant recovery this year and that China will continue to take measures to boost consumption.
  • BoJ Governor Kuroda said the BoJ must maintain current monetary easing but there will also likely be scope to consider steps to address the side-effects of easy policy, while he added the BoJ will surely head for an exit from easy policy and has the ability to do so when the inflation target is sustainably and stably met.
  • BoJ Minutes from the January meeting stated that members agreed Japan's economy is expected to recover and inflation is likely to slow towards the latter half of next fiscal year, while it reiterated the importance of current monetary easing policy and many members said more time was needed to gauge the impact of BoJ steps on market function.
  • Japan's Ruling Party proposes a JPY 30k cash handout to low-income households, with an additional JPY 50k per child, via Kyodo citing a senior official; Japan PM Kishida says the government is to mobilise all measures available to prepare the environment for wage hikes, to increase minimum wages beyond JPY 1k nationwide.

European bourses are under marked pressure as sentiment sees a marked deterioration as Banking names slip, SX7P -5.3%, amid renewed focus on Credit Suisse, -18.0%; Euro Stoxx 50 -2.4%. Sectors are predominantly in the red with Banking names underperforming and more broadly there is a defensive bias emerging, as Healthcare remains the only sector in the green. Stateside, US futures are directionally in-fitting with the above though magnitudes slightly more contained at present, ES -1.1%.

Top European News

  • ECB is still leaning towards a 50bp rate hike on Thursday, given calming markets, stubborn inflation and credibility concerns, via Reuters citing sources. New projections still show inflation significantly above 2% target in 2023, slightly above in 2025. To raise underlying inflation projections. Piece adds that dovish members felt vindicated by recent market turbulence and were likely to push back against committing to further hikes, instead saying any move would be data dependent.
  • IFW, on Germany: sees inflation 5.4% in 2023, 2.1% in 2024. GDP at 0.5% (prev. 0.3%) in 2023 and 1.4% (prev. 1.3%) in 2024. Ifo says German inflation is to fall in to 6.2% in 2023, and 2.2% in 2024; sees GDP at -0.1% in 2023 and 1.7% in 2024.
  • Turkey's Parliament will likely ratify Finland's NATO accession bid before it closes in mid-April, according to two Turkish officials.


The DXY has experienced a marked turnaround from initial 103.44 lows, with the index now comfortably above 104.00 amid the latest banking concerns.
Action which has been exacerbated by a marked safe-haven spike in fixed income which has eroded the earlier EUR/USD upside on RTRS ECB sources around 50bp for Thursday; EUR/USD at 1.0667 trough vs 1.0759 peak.
Given the size of the USD move, G10 peers ex-JPY are softer across the board with the CHF leading the downside given the latest focal point for banking sector concern is Credit Suisse; USD/CHF testing 0.92 and EUR/CHF above 0.98.
As mentioned, JPY is the outperformer given its traditional haven allure and is below the 134.00 mark within 133.76-135.11 parameters.
Elsewhere, GBP succumbs to the USD pre-budget while antipodeans and CAD slip as well though the latter is deriving some relative support from comparably resilient crude prices.
PBoC set USD/CNY mid-point at 6.8680 vs exp. 6.8650 (prev. 6.8949)

Fixed Income

  • EGBs lead broad and marked debt recovery as banking stocks tank, Bunds fade just shy of 136.00 vs a 133.33 low on ECB sources suggesting a 50bp hike is still favoured on Thursday.
  • Gilts rebound in slipstream alongside US Treasuries within 104.47-103.12 and 114-15+/113-08+ respective ranges.
  • df


  • WTI and Brent front-month futures are on the backfoot amid the mentioned deterioration in risk sentiment, with the benchmarks trimming initial upside and are now near unchanged on the session.
  • Specifically, WTI and Brent are at the lower end of USD 71.50-72.56/bbl and USD 77.69-78.73/bbl parameters respectively.
  • Elengy confirms strikes on three French LNG terminals has been extended until 21st March.
  • US Energy Inventory Data (bbls): Crude +1.2mln (exp. +1.2mln), Gasoline -4.6mln (exp. -1.8mln), Distillate -2.9mln (exp. -1.2mln), Cushing -0.9mln.
  • Oil output at Kazakhstan's Tengiz refinery was at 645k BPD on March 10th (vs 563k between March 1-6), according to sources.
  • IEA OMR (Feb): 2023 global oil demand upgraded 200k BPD to 101.9mln BPD (prev. 101.7mln BPD); oil supply is outstripping lacklustre demand, but market will balance in the middle of the year
  • China is to lower steel production in order to attain climate goals, according to Bloomberg sources.
  • Spot gold has managed to glean a haven bid from the latest turn in sentiment, with the yellow metal modestly firmer on the session and above USD 1900/oz compared to the earlier USD 1885/oz low; in contrast, given the tone, base metals are slumping.


  • China tells its military to deepen war preparedness planning, Xinhua reports.
  • US military confirmed that a Russian fighter jet struck the propeller of a US military Reaper drone, forcing the US to bring it down over the Black Sea.
  • US summoned the Russian ambassador regarding the downing of the US drone over the Black Sea, while Russia views the drone incident as a provocation, according to RIA citing Russia's ambassador.
  • Ukrainian President Zelensky said the top command's unanimous position is to strengthen Bakhmut's defence and inflict maximum losses on the enemy, according to Reuters.
  • Yahoo News said it obtained Russia's secret document regarding a plan for destabilising Moldova and promoting Russian interests in the country.
  • Honduras announced it is to establish diplomatic ties with China, while Taiwan's Foreign Ministry said it urges Honduras to carefully consider the decision to build ties with China and don't fall into China's trap. Taiwan added that China's only purpose to build ties with Honduras is to squeeze Taiwan's international space and that China has no intention of fostering the well-being of the Honduran people.
  • US Congressional delegation is to visit Taiwan from March 15th-16th and will meet with senior Taiwan leaders to discuss US-Taiwan relations, regional security, trade and investment, and other significant issues of mutual interest, according to the American Institute in Taiwan.
  • "Joint naval manoeuvers between Iran, China and Russia will begin in the northern Indian Ocean, starting today", via Sky News Arabia.

US Event Calendar

  • 07:00: March MBA Mortgage Applications +6.5, prior +7.4%
  • 08:30: Feb. PPI Ex Food and Energy MoM, est. 0.4%, prior 0.5%
  • 08:30: Feb. PPI Final Demand YoY, est. 5.4%, prior 6.0%
  • 08:30: Feb. PPI Final Demand MoM, est. 0.3%, prior 0.7%
  • 08:30: Feb. PPI Ex Food and Energy YoY, est. 5.2%, prior 5.4%
  • 08:30: Feb. Retail Sales Advance MoM, est. -0.4%, prior 3.0%
  • 08:30: Feb. Retail Sales Ex Auto MoM, est. -0.1%, prior 2.3%
  • 08:30: Feb. Retail Sales Ex Auto and Gas, est. -0.2%, prior 2.6%
  • 08:30: Feb. Retail Sales Control Group, est. -0.2%, prior 1.7%
  • 08:30: March Empire Manufacturing, est. -7.9, prior -5.8
  • 10:00: Jan. Business Inventories, est. 0%, prior 0.3%
  • 10:00: March NAHB Housing Market Index, est. 40, prior 42
  • 16:00: Jan. Total Net TIC Flows, prior $28.6b
  • 16:00: Jan. Net Foreign Security Purchases, prior $152.8b

DB's Jim Reid concludes the overnight wrap (his note alas is stale as it hit before the Credit Suisse news)

After three sessions of massive turbulence, the last 24 hours has seen market volatility begin to stabilise for the first time since the SVB crisis began.The bank run story seems to have run out of the requisite oxygen to continue the trends from Monday, however.The evidence from yesterday was that the back stopping of US bank depositors has started to starve the immediate crisis of oxygen. More medium term, we should probably still view this whole episode as evidence that the tightening cycle is having an impact with the usual lag and that events are unlikely to stop here. See our "Waiting for the Lag" chart book from last month here for why we thought the negative impact from the global hiking cycle was likely only just starting for the real economy.

However for now crisis conditions are reversing. This is evident across the board, with equities (including bank stocks) seeing a major recovery, and sovereign bond yields paring back a good chunk of their declines over recent days. Furthermore, investors are rowing back on their predictions of an imminent pause in rate hikes, not least after the US CPI print offered a fresh reminder about high inflation. Obviously we’re still a long way from the pre-SVB state of affairs that prevailed last Wednesday, but with worries about bank contagion starting to subside, we’re finally seeing some optimism return to financial markets again.

When it comes to the latest on SVB, there weren’t really any new developments yesterday of note. But in many respects that was the best news possible. Through the first half of the US trading session beleaguered regional banks such as First Republic and Western Alliance were up nearly 50% on the day, before a midday slide saw the rallies cut in half. However, the relative calm newsflow did spur a major bounceback overall, with First Republic (+26.98%) and Western Alliance Bancorp (+14.36%) still up significantly on the day while still well beneath their levels at the start of the week when the deposit backstop was known about. The KBW index finished (+3.19%), posting its strongest day in 4 months, whilst Europe’s STOXX Banks (+3.01%) saw its best performance in 5 months. That supported a solid performance for the major indices, with the S&P 500 (+1.68%) recovering thanks to large advances among the more cyclical sectors. The relief rally saw 84% of the S&P 500 constituents climb yesterday, while 87% of the STOXX 600 was higher as the European index gained +1.59%.

Whilst some of the most-affected stocks were bouncing back yesterday, we saw a similar reversal in the path of short-dated government bond yields. For instance, both the 2yr Treasury yield (+27.4bps) and the 2yr German yield (+20.2bps) posted their biggest daily advances since June 13 2022 and Dec 15 2022 respectively. Prior to a handful of times over the last year, 2yr rates in either country had not moved that much since March 2011 and before that the Global Financial Crisis. 2yr rates were inline to move as much as those periods intraday before rallying in the second half of the US trading session. Longer-dated yields also saw sizeable gains, with those on 10yr Treasuries (+11.6bps), bunds (+16.1bps), and gilts (+11.8bps) all rising. In Asia this morning, the 2Yr Treasury yield (+5.5bps) is edging higher again but 10yr yields are -2bps lower and this helping the inversion trade again.

Those higher yields yesterday were driven by growing doubts that central banks were about to pause their rate hikes, contrary to the speculation on Monday. Of course, that shift was largely driven by the stabilisation in markets, but the latest US CPI print for February added further weight to the arguments to keep hiking. That showed core CPI growing at its fastest pace in 5 months, and in the absence of the SVB crisis it could well have been a report that put the Fed on track to hike by 50bps next week. In terms of the main takeaways, headline CPI was a bit weaker on the month at +0.37%, taking the annual rate down to +6.0% as expected. But core CPI was stronger than expected at +0.45% on the month (vs. +0.4% expected). And this isn’t just a blip either, since if you look at the 3-month annualised rate, core CPI is running at +5.2%, which is far too strong for the Fed to be comfortable.

Aside from the robust prints on headline and core, some of the specific details of the CPI report looked even worse. For instance, the trimmed mean that excludes the biggest outliers was still running at +0.63%, which means that inflationary pressures are broad-based and can’t just be blamed on specific factors. There was also bad news from the Atlanta Fed, who break down the numbers into a sticky CPI and a flexible CPI measure. This showed the sticky CPI running at a 5-month high of +0.55%, whereas flexible CPI fell -0.12%, which added to the evidence that this inflation is at risk of becoming persistent.

With that in mind, investors priced in a growing chance that the Fed would in fact proceed with a 25bps hike next week, with the amount priced in for the March meeting up from 14.3bps on Monday to 19.2bps yesterday. That implies a 77% chance that they’ll run with a hike, although we’ve still got a full week until their decision, which is clearly contingent on any other financial stability issues arising. When it comes to the terminal rate, investors’ expectations also bounced higher, with the rate priced for May up +19.7bps on the day to 4.955%. And looking further out to year-end, the rate priced in for December was up by a massive +48.5bps on the day to 4.23%, although that’s less than a third of the -181bps decline over the previous three sessions.

When it comes to central banks, we’ll soon see attention shift over to the ECB’s decision tomorrow. Up to last week, the widespread expectation had been that the ECB would go for another 50bps hike, in line with their own pre-commitment at the last meeting. But with the SVB collapse and growing financial stability concerns, the prospect of more aggressive hikes has been thrown into doubt, with 25bps now seen as in play. In light of this, our own European economists published an update yesterday (link here), in which they write that a 25bps hike on Thursday seems the more likely move than 50bps, which would take the deposit rate up to 2.75%. Nevertheless, their view is that it would take a significant and persistent financial conditions shock to offset the upside risks to price stability. So with the re-acceleration in core inflation recently, they continue to see 3.5-4% as the main landing zone for the terminal rate.

Asian equity markets have rebounded this morning. As I check my screens, risk appetite is being restored across the region with the KOSPI (+1.45%) leading gains followed by the Hang Seng (+1.26%) while the Shanghai Composite (+0.67%) and the CSI (+0.37%) are also gaining ground. Elsewhere, the Nikkei (+0.17%) is trading higher, paring some of its earlier larger gains though, led by banks and financials. In overnight trading, US stock futures are little changed with those on the S&P 500 (+0.09%) and NASDAQ 100 (+0.08%) just above flat.

We have early morning data from China with retail sales in the first two months of 2023 rising +3.5% y/y in February (in line with market expectations) as Beijing abandoned its strict zero-Covid policy. The data was much better than the -1.8% contraction in December. Additionally, Fixed-asset investment showed a better than expected improvement, rising +5.5% YTD in February (v/s +4.5% expected) after +5.1% growth in December. Meanwhile, industrial production for the Jan-Feb period increased by +2.4% y/y, faster than a +1.3% gain in December but still a little softer than the +2.6% growth expected.

Looking forward, one of today’s main highlights will be the UK government’s Spring Budget, which Chancellor Hunt will be unveiling in the House of Commons around 12:30. All being well, it should be the first fiscal event in a while taking place under normal circumstances. The last one was the Autumn Statement in November, where Hunt announced £55bn of fiscal tightening to regain market credibility. And that statement came in response to September’s mini-budget, which unveiled the biggest package of tax cuts in half a century but triggered market turmoil. In terms of what to expect today, our UK economist writes in his preview (link here) that this should be a “no frills” budget, not least because of the fiscal surprises that took place last year. This means that policy announcements will be kept to a minimum, although there will be a focus on keeping energy costs low, boosting public sector pay, and lifting some public spending. In turn, this could set up a more generous Autumn Statement later in the year, particularly as the government moves closer to the general election required by January 2025.

Ahead of that, the latest UK labour market data showed that the unemployment rate remained at 3.7% over the three months ending January (vs. 3.8% expected), and the number of payrolled employees in February was up +98k (vs. +65k expected). In the meantime, there were signs of slowing wage growth, with regular pay growth (excluding bonuses) down to +6.5% across the three months to January relative to the previous year (vs. +6.6% expected).

To the day ahead now, and in the UK the government will deliver their Budget announcement. Otherwise, data releases from the US include February’s PPI and retail sales, along with the NAHB housing market index for March and the Empire State manufacturing survey for March. In the Euro Area, we’ll also get January’s industrial production data. Finally, earnings releases include Adobe.